Business And The Supreme Court Of 2003

Judy Olian

(Judy Olian is Dean of Penn State's Smeal College of Business and a leading expert in strategic human resources management.)

The US Supreme Court justices surprised many in the 2003 term. All told, most observers viewed the session as a win for centrists and moderate liberals, and as a disappointment for many conservatives. Political persuasions aside, how do the decisions affect business?

The blockbuster decisions for business were the University of Michigan affirmative action cases in the law school ( Grutter v. Bollinger et al. ) and in undergraduate admissions ( Gratz et al. v. Bollinger et al. ). The decisions were mixed. The Gratz ruling outlawed systems that mechanically award extra points for membership in a protected class, but in Grutter the Court endorsed more qualitative admission policies that—in the interest of a multi-racial student body—consider race as one of the factors in admissions decisions.

More than 20 Fortune 500 companies including Shell, Intel, Microsoft, Johnson & Johnson, and GE wrote in support of the University's position. Many of these firms viewed the decision as an implicit endorsement of their ongoing race conscious practices in hiring, training and development as they strive to improve the racial diversity of their talent pipeline and executive ranks. Like the momentous 1978 decision in University of California Regents v. Bakke that served as a legal and social milestone regarding affirmative action, the Michigan decisions will likely chart the course for university and employment practices for the foreseeable future, though not without limit. Justice O'Connor noted for the majority that "race conscious admissions policies must be limited in time... The Court expects that 25 years from now, the use of racial preferences will no longer be necessary to further the interest approved today."

Three other cases concerned the size of punitive awards in product liability and insurance lawsuits. The court asserted that a punitive award of $145 million against State Farm Insurance because of the insurer's handling of an auto accident claim was excessive, given the $1 million compensatory damages. The Court also rejected lower court punitive awards of $290 million and $15 million against Ford Motor Company in two auto induced personal injury cases. The Court returned all cases to the state courts for review, signaling that exorbitant punitive awards should be questioned on constitutional grounds.

The court also affirmed workers' right to sue their state employers for alleged violations of the Federal Family and Medical Leave Act. Although the justices have been deferential to state over federal jurisdiction, in State of Nevada Department of Human Resources vs. William Hintz , the court extended federal rights under the Act to Nevada State employees. The justices noted their interest in protecting women against a tradition of gender-based discrimination practiced by some state governments.

As a result of Desert Palace, Inc. v. Costa , it will be easier for victims of employment discrimination to file suit. Catharina Costa claimed she was dismissed from a Las Vegas casino because of her sex. The casino attempted to rebuff her suit claiming she offered no direct evidence of discrimination. The justices ruled that discrimination filings can still be valid without direct evidence of discriminatory behavior, even if there are certain legitimate circumstances for employer actions against an employee,. An employee "need only present sufficient evidence for a reasonable jury to conclude, by a preponderance of the evidence, that race, color, religion, sex or national origin was a motivating factor for any employment practice", wrote Justice Thomas.

To the dismay of many corporations, the court declined for technical reasons to rule on Nike v. Marc Kasky . Nike was sued for allegedly misleading statements regarding the company's labor practices in third world countries. Kasky claimed the statements constituted commercial speech which, like advertising, are not protected under the First Amendment. Nike contended that its press releases and other written statements are constitutionally protected as free speech. Nike persisted to the highest court in an attempt to block the lawsuit, but was unsuccessful. Other corporations are concerned that like Nike, they could be sued for general statements about their company that some might construe as inaccurate.

Finally, though not a US Supreme Court decision, Intel v. Hamidi has important implications for corporate responses to unfriendly email spamming. On 6 occasions over 2 years, Ken Hamidi, who had been dismissed by Intel, sent tens of thousands of emails to Intel employees criticizing the corporation. Intel claimed that he was trespassing on company property, in this case its computer networks. The California Supreme Court didn't see it that way. It sided with Hamidi claiming he caused no harm or disruptions to Intel's networks. While he was a nuisance, he was entitled to free speech.

From a business perspective, most of these decisions strengthen employee rights. In some instances, employers will applaud the decisions because they are critical of exorbitant punitive awards, or they legitimize practices that promote cultures that are diverse, respectful of differences, and family friendly. But the court's rulings are also grounds for concern in the corporate world. What about employers' free speech and property rights? That will have to wait for another term.

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